In recognition of the increase in the adoption of digital channels by financial consumers, in late 2021 the FSCA published a Digital Banking Research Report on the state of digital banking activities in South Africa. The term “digital banking” refers to the digitisation of traditional banking services in order to more efficiently deliver financial services to customers. This process comprises of the digitisation of marketing, customer onboarding, service channels, processes, products and features such as savings and deposits, loan management and payments of bills. It also facilitates digitally other lifestyle services such as e-health, telecoms, media, etc. Key considerations outlined in the report include:
- The different types of digital banks, including challenger banks i.e. banks with
full banking licences that also offer digital facilities, neobanks i.e. entities with no banking licence, that partner with financial institutions to offer bank-licensed services, and non-banks i.e. entities that have no links with traditional banking licences that, instead, provide financial services by other means.
- Rapid digitisation of banking processes across these four areas – the customer experience (including the onboarding of customers, products and services, operations and technology, and organisational structure.
- The benefits and potential drawbacks of digital banking. Benefits include a simplified customer processes, convenience and constant access, and lower fees. Drawbacks include system downtime or operational stability, security issues, and technological illiteracy.
The report puts forward the following considerations for applicable entities to reflect on:
- The move toward a more digital banking environment will mean that consumers will need to become digitally literate, highlighting the need for consumer education.
- Data – A digital bank’s dependency on data generally, and big data specifically, to serve customers requires enhanced data-privacy and data-protection practices, in compliance with applicable legislative requirements such as those prescribed by the Protection of Personal Information Act, 2013.
- Digital banking increases the risk around AML/ CFT, eKYC and cybersecurity, and thus requires digital banks to establish and implement sound risk mitigation strategies.
- Digital banks’ are often dependent on third-party service providers and fintech/digital ecosystem partners – these third parties must be appropriately managed in order to mitigate against the high risk of breach.
- The digital banking experience brings with it an increase in digital operational and technological risks that have the potential to prejudice customers. Disaster recovery plans are essential.
In a nutshell, the Report makes clear that good financial governance and financial regulatory compliance is a key element of any digitisation process.